Fund managers call for change in ZSE closing prices

Fund managers through their industry grouping, the Association of Investment Managers of Zimbabwe, are pushing for the adoption of new closing prices on the Zimbabwe Stock Exchange from the current volume average weighted price (VWAP).

The VWAP is a trading benchmark which gives the average price a stock has traded at throughout the day, based on both volume and price.

But now, fund managers, who are the main investors on the exchange on behalf of their clients, say that the exchange should instead adopt a closing auction price as it offers a more inclusive computation of the closing price and is also in line with global trends. According to them the major limitation of the current system is that it only shows a historical average and not what is happening currently or in the future.

The Closing Auction Price uses the Call Auction – where consolidation of liquidity occurs after the end of the continuous trading session and all marketable orders are accepted – and the On-Close Facility, which runs parallel with continuous trading. In the case of large order imbalances during the pre-close period, the on close facility, only accepts orders from one side of the book to offset the imbalances.

AIMZ representative Farai Gwaka told a recent meeting that the closing auction price was the system commonly used in developing markets. According to compiled information the auction system is used in 24 developed markets, in seven advanced emerging markets, four frontier and in five secondary emerging markets. The Last trading price is commonly used in frontier markets (15 markets) while VWAP is used in 12 although none of the developed markets use it. The official closing price is used in just six markets.

“The main advantage of the closing auction price is that it offers an all inclusive computation of the price,” said Gwaka.

However computation of the auction price is complicated and most analysts believe that it is best suited to developed markets which have more depth and liquidity than the ZSE. “The fact that retail investors on platforms such as C-Trade can influence closing prices, implies that a more price-reflective approach would be VWAP and not the last trading price or the auction system,” said an analyst at Morgan & Co.Meanwhile ZSE says it will sign a Memorandum of Understanding (MOU) with the Botswana Stock Exchange (BSE) to enable the dual listing of stocks and raising of capital for the development of the country.

Currently, Old Mutual, PPC, Seed Co international are the only actively dual listed companies.

ZSE chief executive officer, Justin Bgoni said the agreement will benefit both exchanges.

“As an exchange we have not just waited for that, what we are doing is we are trying to make it easier for companies to also list on other exchanges as well. For instance we are about to conclude an MOU with the BSE, what it means is that it will be easier for a company to list on both exchanges. So you can raise both sets of money, you can raise Pula and you can collect USD easily as well as Zimbabwean dollar so we are doing that as well.”